What can we learn from dot-coms? Quite a lot, says Lawler

E-PAY

What can we learn from dot-coms? Quite a lot, says Lawler

The dot-com bubble may have burst, but the growth of internet-style reward packages will have long-lasting implications for the way that we reward and motivate our employees, writes Ed Lawler in the latest issue of WorldatWork Journal, the prestigious US compensation publication.

One might have imagined that with the rapid demise of so many dot-com businesses, reward practitioners would have little, if anything, to learn from their approach to compensation and benefits. But then you would be mistaken, according to Ed Lawler of the Centre for Effective Organisations at the University of Southern California. He reckons you could be missing out on important information about how to make your reward system more effective in the "next economy".

"In many respects, the dot-coms were a bold experiment in changing the employment relationship between individuals and organisations and, as such, provide a valuable opportunity to learn about reward systems and organisational effectiveness."

Dot-com style reward packages

Many companies that embraced the internet reshaped the reward management landscape. Often these online businesses emphasised low cash compensation. Yet they did much to nurture the financial side of their relationships with employees by giving staff a direct stake in the success or otherwise of the business. Many dot-coms offered all recruits potentially lucrative share options formerly reserved for the management elite. They offered few fringe benefits, minimal formal salary structures and a raft of special perks.

Lessons from the dot-comp era

So, just how have the reward rules been rewritten by the online economy? Lawler argues that reward will change in three main ways:

• Share ownership: First and foremost, organisations will make much greater use of share options in their reward systems. "The reason is simple: stock ownership is a powerful vehicle and one whose time has come," says Lawler.

• Pay for skills, knowledge and competencies: For Lawler, the "dot-comp" era highlighted the importance of individual skills and knowledge in determining pay packages. "It accelerated an inevitable move from focusing on paying individuals for the job they do to paying individuals for the skills, knowledge and competencies they have."

• Individualised reward packages: A popular feature of internet-style pay packages was the opportunity for key employees to "customise" their rewards and working conditions. As Lawler explains: "Many dot-coms went dramatically away from a traditional standardised package of benefits, working hours, etc, and allowed all employees to individualise relationships."

About the author

Edward E Lawler has been hailed as one of today’ s top management gurus. He is best known for more or less inventing the concepts of strategic reward and new pay . Few serious students of human resources can have escaped the influence of Lawler, whose book Strategic Pay also introduced us to the notion of line of sight . Without doubt, this volume has become one of the classic works on reward management.

A final word

Want to know more?

Title: Pay strategies for the next economy , by Edward E Lawler, WorldatWork Journal, first quarter 2002.

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Posted 27 March 2002